Concrete step for destocking

Updated: 2016-02-04 08:33

(China Daily)

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Concrete step for destocking

An investor watches an electronic board showing stock information at a brokerage office in Fuyang city, Anhui province, Feb 2, 2016.[Photo/IC]

In a move believed to be aimed at reviving the housing market, the People's Bank of China and the China Banking Regulatory Commission announced on Tuesday that the down payment requirements will be reduced from 25 percent to 20 percent for first home buyers and from 40 percent to 30 percent for second home buying.

The move, which marks a further cut in down payments, is a concrete step toward destocking the country's growing inventory of unsold homes.

Since destocking the housing market was set as a key task for this year at the Central Economic Work Conference in late December, there have been expectations of such measures. But compared with other policies, such as preferential loan interest rates, the reduction of down payment requirements is a more direct incentive and expected to be more effective in spurring housing sales given that it will lower the threshold for home buying and bring to the market those who could not afford the higher down payments.

It is believed that the sluggish real estate sector has played a role in the country's decelerating growth, which slowed to 6.9 percent in 2015. There were 52 million square meters of unsold homes in China last year, a rise of 11.2 percent year-on-year, and if the upward trend continues it will be a big drag on economic development.

Given its huge interconnections with a number of domestic upstream and downstream industries, real estate development plays an important role in driving the country's economic development. However, the experience of house prices rising rapidly after every round of stimulus measures is still fresh in the mind. This may partly explain why the authorities have excluded the latest down payment reduction from homebuyers in such first-tier cities as Beijing, Shanghai and Shenzhen, where home prices have rebounded considerably in the past months, in sharp contrast with soft sales in many others cities, small ones in particular.